Can International Stocks Outperform Once Again in 2026? Here's What Nobel Prize Economist Robert Shiller Has to Say.

Core Insights - U.S. stocks had a strong performance in 2025, with the S&P 500 increasing by 16.4%, despite a significant drop in March and April [1] - International stocks outperformed U.S. stocks, with the MSCI World ex USA index rising by 32.6% due to a weakening dollar and shifts in investment strategies influenced by trade policies [1] - The S&P 500 has shown impressive total returns of 26.3% and 25% in the two preceding years, with an average annual return of 14.8% since 2009, significantly above its historical average [5] Investment Performance - The S&P 500's stock prices have increased at more than double the rate of cumulative earnings-per-share growth since 2009, leading to a high forward price-to-earnings (P/E) ratio of nearly 22 times forward earnings expectations [6] - The cyclically adjusted price-earnings (CAPE) ratio, developed by economist Robert Shiller, has surpassed 40, a level not seen since the dot-com bubble, indicating potential overvaluation in the market [7] Future Outlook - Shiller forecasts muted returns for the S&P 500 over the next decade, predicting average annual nominal returns of only 1.5%, which may not keep pace with inflation [8] - Investors are encouraged to consider whether international stocks can maintain their momentum and continue to outperform in 2026 and beyond [3]